A 401(a) plan is an employer-sponsored money-purchase retirement plan that allows contributions from the employee, the employer, or both
. It is a type of tax-advantaged account designed for public-sector employees, such as those working in government agencies, educational institutions, and non-profit organizations
. Key features of a 401(a) plan include:
- Employer-sponsored : The employer establishes eligibility and the vesting schedule for the plan
- Contributions : Both the employer and employee can contribute to a 401(a) plan
- Withdrawals : Employees can withdraw funds from a 401(a) plan through a rollover to a different qualified plan or as a lump-sum payment or annuity
- Investment options : 401(a) plans typically offer fewer investment options than other types of plans and are relatively low-risk
- Tax advantages : Contributions to a 401(a) plan are made with pretax dollars, which means that the employer will deduct the contribution from the employee's salary before the government taxes it
While 401(a) plans are similar to 401(k) plans, which are more common in profit-based industries, there are some differences. For example, 401(a) plans do not allow employee salary deferral contributions
. Additionally, the employer has more control over the plan structure in a 401(a) plan compared to a 401(k) plan
